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Regional trade is the answer to Uganda’s trade deficit

As a country with the highest population growth rate in Africa (3.5 per cent), Gross Domestic product (GDP) growth has to match the population increase to maintain the current standard of living in the country.

Tuesday December 4 2012

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By Kenneth Atugonza

As a country with the highest population growth rate in Africa (3.5 per cent), Gross Domestic product (GDP) growth has to match the population increase to maintain the current standard of living in the country. If we are to realise the targets set in the National Development Plan (NDP), the economy would have to expand much higher than the 3.5 per cent. For the economy to grow, a number of things have to happen, one of which is to export more goods and services.

Address bottlenecksLast month, Uganda joined the Common Market for East and Southern Africa (COMESA). Although joining COMESA is a good move, the key issue is our competitiveness in the region. This simply means that our companies produce quality goods at the cheapest price compared to other members. This would put us in a position to export more; thus, realising a net-benefit from our membership. Government must therefore act decisively to address bottlenecks faced by businesses in the country for example, the reluctance of banks to lend at reasonable rates and the high cost of energy.

There is no doubt that joining COMESA is a great opportunity especially given our unrivalled advantages in agriculture, tourism and education. But we must be quick to realise where we have an advantage and make the most of it. Looking at the UK, the country has been quite savvy in what some would not have prioritised as a foreign exchange earner, the Premiership League. Last season, the country attracted 1 million football tourists bringing in £706 million. The sector has also attracted huge foreign investments with millionaires from America, Russia, the Middle East and Asia buying stakes in respective clubs. UK education is another sector that has contributed millions of pounds to the economy thanks to 400,000 foreign students in higher education.

Revamp higher learning institutionsLooking at our higher learning, the government has definitely not been ahead of the curve to maximise the revered reputation of Makerere University. Despite starting off as an affiliate to the University of London, the lack of investment in the institution has prevented it from keeping pace with leading University of London colleges like London Business School and UCL. It is also concerning to learn that one of our private Universities (Kampala International University) can go ahead and award PhDs despite the reservations of the regulatory agency. If our education sector is to maintain the respect it enjoys in the region thereby attracting foreign students, the sector has got to have effective oversight and substantial investment. This will not only help boost our foreign earnings but more importantly, ensure a first class education to the citizens. This is crucial because in today’s competitive world, brain power is the new currency of success.

Develop regional tourismWe should also aim at developing and promoting regional tourism especially our cultural and historical sites and because of its lower cost compared to tourists from overseas, there is more likelihood of repeated visits. It would definitely revitalise the transport sector within the region particularly small airports. With Uganda’s rich history especially chiefdoms and kingdoms, and attractions like mountain gorillas, we are more likely to realise one million tourists, a target we have not hit thus far. But there is no doubt that agriculture offers the best opportunity and government should ensure substantial investment in the sector.

Emphasis should therefore be on regional trade especially given the good growth rates of developing economies and an expanding middle class. Developed economies are experiencing anaemic growth mainly because of high sovereign debt and an aging population (meaning less tax revenues).

Last week the Organisation of Economic Co-operation and Development (OECD) which represents the world’s richest 34 nations downgraded its growth forecasts from 2.2 per cent to 1.4 per cent. This is not promising news considering that half of our exports go to Europe. That is why the COMESA free trade area is strategically a smart move because I believe regional trade is the answer to our trade deficit. Nevertheless, our economy faces enormous challenges including high unemployment, poor infrastructure and endemic corruption. This will certainly continue to undermine its potential in the short to medium term.

The writer is a business and finance analystE-mail: kennethatugonza@gmail.com